(Bloomberg Opinion) — Details of Democratic House Speaker Nancy Pelosi’s closely guarded drug-pricing plan are now out, and she’s not messing around.
The draft proposal, outlined in a document first obtained by Bloomberg Government, would give Medicare the power to directly negotiate the price of 250 expensive drugs – focusing mostly on medicines that lack robust competition – and grant the government sharp teeth in those talks. Drug prices would be tied to their average cost in a basket of developed countries that have more affordable medicines, and pharmaceutical companies that refused to negotiate or extend lower prices to other parts of the health system would face significant fines.
Pelosi’s plan could still change before it’s formally released, but it appears to be a dramatic shift left for her party, which previously might have been happy just giving Medicare the right to bargain over drug prices. It’s also a sharp contrast with the Senate’s mild bipartisan drug-cost effort, which doesn’t even touch on this point. Negotiation alone would likely have a relatively mild impact, as the government would lack leverage unless it was willing to take the politically dicey step of refusing to cover some drugs. It’s the addition of a price index and penalties that make this bill a much more potent menace to drugmakers’ market power and profitability.
The proposal is so aggressive in its current form that it has little chance in the Republican-controlled Senate. That doesn’t mean the pharmaceutical industry can breathe easy. The speaker is going big for a reason.
Pelosi’s plan is an effort to pressure the Senate and the Trump administration into more aggressive action, and to give Democrats a potent line of attack on an issue that resonates with voters. It just might succeed on both fronts; drug pricing is an area where Republicans are vulnerable.
Drug costs are a policy priority for President Donald Trump, and his populist tendencies are already shifting Republican orthodoxy on the issue. He has proposed an international price index for certain drugs that has obvious similarities to Pelosi’s plan, though it is much more limited in scope. While his administration indicated early support for the Senate’s package, Pelosi’s more ambitious alternative makes it much harder to stop there. That is, unless you think the president will stand by and absorb accusations that he’s soft on drug prices.
Trump won’t be pressured by Pelosi alone, but by the whole Democratic presidential field. The entire group supports allowing Medicare to negotiate drug prices. A number of them want to go even further, by limiting launch prices or stripping patents from companies that stubbornly insist on excessively high prices.
Pelosi’s diversion from the Senate proposal makes it less likely that we’ll see major drug pricing legislation passed before 2021. The desire to deny Trump the opportunity to sign a drug-pricing bill might even be another reason the proposal is so aggressive. That should provide only scant comfort for pharmaceutical executives and investors as the debate over prices moves into hostile territory.
To contact the author of this story: Max Nisen at [email protected]
To contact the editor responsible for this story: Beth Williams at [email protected]
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Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.